@Mike9241
Social security taxes are caped and already maxed out through my W2 income. Hence, the LLC-B and resulting W2 from it DOES NOT have to pay social security.
Hence, the FICA taxes will only be 3.8% versus the ordinary income tax rate applicable on Sch-E income.
(In my original post I mention 2.45% which is only the employee portion. I didnt add the S-corp portion of 1.45%.)
Reasonable salary = Max. contribution limit to solo 401K
Management fees collected by S-corp = reasonable salary + 0.25*reasonable salary
Distribution = 0 (as provides no benefit)
Also why there is no economic substance: Property management is a valid active business, and by making the setup above I am correctly segregating passive activity reported on Sch-E and active activity of property management through LLC-B.
@dmertz: LLC-A is a disregarded entity that owns the property and it pays management fees to LLC-B which is an S-corp.
